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PUNJAB SIND DAIRY vs.DEPUTY COMMISSIONER OF INCOME TAX

HIGH COURT OF BOMBAY

M.S.SANKLECHA&A.K.MENON, JJ.

INCOME TAX APPEAL NO. 950 & 951 OF 2014

Dec 13, 2016

(2016) 97 CCH 0312 MumHC

(2017) 146 DTR 0021 (Bom)

Case pertains to

Asst. Year 2006-07 & 2007-08

Decision in favour of:

Revenue

Books of accountsAppellant engaged in manufacturing and sale of milk and other productsThere was search and
survey action on residential as well as business premises of Director-related persons of assesseeAO during the course of
assessment proceedings found that quantities of sale of milk reflected in its books of accounts were not supported by
evidence and AO in his order rejected assessee's books of account resulted in estimating its incomeCIT(A) held that in
course of assessment proceedings, appellant-assessee was called upon to produce quantitative details of sale of milk with
documentary evidence but no documentary evidence was submitted to AONeither books of account nor bills or vouchers
produced to substantiate its claim of milk being sold as claimed in books of accounts, appeal filed by appellant was
dismissed by orderTribunal held that production Register containing particulars of issuance and consumption was not
maintained, rejection of appellant-assessee's books of Accounts cannot be faulted withHeld, grievance of appellant that
mere non maintenance of stock register would not warrant rejection of the books of accountAppellant had failed to
produce Registers indicating Production, Issuance and ConsumptionView to reject books of account for was possible
view on factsAssessees appeal dismissed.

Held

Appellant-Assessee is engaged in manufacturing and sale of paneer and trading in milk and other products. There was a
search and survey action on 8th May, 2007 on the residential as well as business premises of Director/ related persons of the
Appellant-Assessee. Consequently, a notice under Section 153A of the Act was issued on 7 th September, 2009. In response, the
Appellant-Assessee filed its return of income, declaring an income of Rs.5. 68 lakhs.

Assessing Officer during the course of assessment proceedings found that the quantities of sale of milk reflected in its books of
accounts were not supported by evidence. Therefore, the Assessing Officer in his order dated 29th December, 2009 passed
under Section153(A) read with Section 143(3) of the Act rejected the assessee's books of account under Section 145(3) of the
Act. This resulted in estimating its income.

Being aggrieved, the Appellant-Assessee filed an appeal to Commissioner of Income Tax (Appeal) [CIT(A)]. By an order dated
17 th September, 2010, the CIT(A) rejected the appeal. It held that in the course of assessment proceedings, the
appellant-assessee was called upon to produce quantitative details of sale of milk with documentary evidence. But no
documentary evidence was submitted to the Assessing Officer. Neither books of account nor the bills or vouchers produced to
substantiate its claim of milk being sold as claimed in the books of accounts. Further, it records that Director of the Company
had admitted that it had not maintained quantitative details nor Inward/Outward Register or consumption and production
Register. Therefore, the appeal filed by the appellant-assessee was dismissed by an order dated 17 th September 2010 of the
CIT(A).

On further appeal, the Tribunal by the impugned order dismissed the appellant-assessee's appeal. It, inter alia, records the fact
that production Register containing particulars of issuance and consumption is not maintained. The rejection of the
appellant-assessee's books of Accounts under Section 145(3) of the Act cannot be faulted with. In the above circumstances, the
appeal filed by the appellant-assessee, was dismissed.

Grievance of the appellant-assessees that mere no maintenance of stock register would not warrant rejection of the books of
account. In support , reliance is placed upon the decision of this Court in B. Bansilal Abirchand Spinning and Weaving Mills
v/s. Commissioner of Income Tax, Poona [75 ITR 260]. In the above case, there is a finding of fact that in view of the nature of
industry, it was not practicable or possible to keep account of the stock. In the case before us, it has never been the case before
the authorities under the Act or even before us that it was not possible to maintain production register. Therefore, the above
submission on behalf of the Assessee has no merits in the context of the present facts.

In favour of

Revenue

Cases Referred to

R. B. BansilalAbirchand Spinning and Weaving Mills v/s.Commissioner of Income Tax, Poona [75 ITR 260]
BrijBhushan Lal Praduman Kumar etc.v/s. Commissioner of Income Tax, Haryana, Himachal Pradesh andNew Delhi [115
ITR 524]
Commissioner ofIncome Tax v/s. S. Khader Khan Son [2008] 300 ITR 157 (Mad).
Commissioner of Income Tax v/s. ContinentalWarehousing Corporation (NhavaSheva) Ltd., [2015] 374 ITR 645(Bom.)

Counsel appeared:

Sanjiv M. Shah, for the Appellant.: S. V. Bharucha, for the Respondent.

P.C.:-

1. These two Appeals under Section 260A of the Income Tax Act, 1961 (the Act), by the Appellant, challenges the impugned
common order dated 22nd January, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order
relates to the Assessment Years 2006-07 and 2007-08. Thus, two appeals.

2 The learned Counsel for the appellant-assessee urges only the following two questions of law for our consideration:

(1) Whether on the facts and in the circumstance of the case and in law, the Tribunal is right in maintaining
rejection of books of accounts under Section 145(3) of the Act for Assessment Years 2006-07 and 2007-08?

(2) Whether on the facts and in circumstances of the case and in law, the Tribunal is correct in approving gross
profit addition Rs.12,15,244/for Assessment Year 2006-07 and Rs.16,11,580/for Assessment Year 2007-08?

3 It is admitted position between the parties that the facts and the law applicable for both the Assessment Years is identical,
except the figures. Therefore, we refer to the facts and figures in Assessment Year 2006-07 and our view thereon would be
equally applicable for Assessment Year 2007-08.

4 Re Question (1):

(a) The Appellant-Assessee is engaged in manufacturing and sale of paneer and trading in milk and other
products. There was a search and survey action on 8th May, 2007 on the residential as well as business
premises of Director/ related persons of the Appellant Assessee. Consequently, a notice under Section 153A of
the Act was issued on 7 th September, 2009. In response, the Appellant-Assessee filed its return of income,
declaring an income of Rs.5. 68 lakhs.

(b) The Assessing Officer during the course of assessment proceedings found that the quantities of sale of milk
 reflected in its books of accounts were not supported by evidence. Therefore, the Assessing Officer in his order
dated 29th December, 2009 passed under Section 153(A) read with Section 143(3) of the Act rejected the
assessee's books of account under Section 145(3) of the Act. This resulted in estimating its income.

(c) Being aggrieved, the Appellant-Assessee filed an appeal to the Commissioner of Income Tax (Appeal)
[CIT(A)]. By an order dated 17 th September, 2010, the CIT(A) rejected the appeal. It held that in the course of
assessment proceedings, the appellant-assessee was called upon to produce quantitative details of sale of milk
with documentary evidence. But no documentary evidence was submitted to the Assessing Officer. Neither books
of account nor the bills or vouchers produced to substantiate its claim of milk being sold as claimed in the books
of accounts. Further, it records that Director of the Company had admitted that it had not maintained
quantitative details nor Inward/Outward Register or consumption and production Register. Therefore, the
appeal filed by the appeallant-assessee was dismissed by an order dated 17 th September 2010 of the CIT(A).

(d) On further appeal, the Tribunal by the impugned order dismissed the appellant-assessee's appeal. It, inter
alia, records the fact that production Register containing particulars of issuance and consumption is not
maintained. The rejection of the appellant-assessee's books of Accounts under Section 145(3) of the Act cannot
be faulted with. In the above circumstances, the appeal filed by the appellant-assessee, was dismissed.

(e) The grievance of the appellant-assessee is that mere non maintenance of stock register would not warrant
rejection of the books of account. In support , reliance is placed upon the decision of this Court in R. B. Bansilal
Abirchand Spinning and Weaving Mills v/s. Commissioner of Income Tax, Poona [75 ITR 260]. In the above
case, there is a finding of fact that in view of the nature of industry, it was not practicable or possible to keep
account of the stock. In the case before us, it has never been the case before the authorities under the Act or
even before us that it was not possible to maintain production register. Therefore, the above submission on
behalf of the Assessee has no merits in the context of the present facts.

(f) The next grievance of the appellant-assessee before us is that for the subsequent Assessment Year 2008-09,
the Tribunal by its order dated 11th June, 2015 on an identical set of circumstances, accepted the books of
accounts as maintained. Therefore, the same view be followed in this year. In fact, in the subsequent Assessment
Year, the acceptance of the books has led to deletion of estimated undisclosed income at Rs.12,54,254/.

(g) We find that the Tribunal in its order dated 11th June, 2015 rendered for the Assessment Year 2008-09
distinguishes its order passed for the subject Assessment Year when compared to the order for the Assessment
Year 2008-09, as under:

The Tribunal has decided the issue against the assessee on the premise and the ground that, the books
pertaining to production, issuance and consumption have not been maintained by the assessee. Such a ground
for rejection of books of account are nonexistent in this year, as we have already stated above that the books of
accounts along with the register, which gives the entire details of day-to-day purchase, production /
consumption and sales have been not only maintained but were also filed before the AO as well as CIT(A).
Another reason for justifying the application of estimation of GP rate by the Tribunal, was that the assessee has
failed to submit any details in support of sale of milk. On the contrary, the assessee had stated before the AO as
well as CIT(A) that bulk sale have been made through account payee cheques and secondly, day-to-day sales
have been recorded, were also produced before the AO. No specific defect or discrepancy has been highlighted
by the AO nor any enquiry has been made. Further, we have also called for the records and books of account of
the assessee to see the nature of entry and recording of transactions. Therefore, under such facts and
circumstances prevailing in this year, the finding of the Tribunal in the earlier years will not apply in the
impugned assessment year.

(h) In view of the aforesaid distinction in facts as recorded by the Tribunal for the Assessment Year 2008-09, it
cannot be said that its order for the Assessment Year 2008-09 will apply to Assessment Years 2006-07 and
2007-08. The Tribunal has taken to a different view in the Assessment Year 2008-09 on set of facts, completely
different from that existing in the Assessment Years 2006-07 and 2007-08. Thus inapplicable.

(i) In our view, the concurrent finding of facts rendered by the authorities under the Act that the
appellant-Assessee had failed to produce the Registers indicating Production, Issuance and Consumption. Thus
the view to reject books of account for the Assessment Years 2006-07 and 2007-08 is a possible view on facts.
Therefore it cannot be said to be perverse and/or arbitrary.

(j) In the above view, Question No.(1) does not give rise to a substantial question of law. Thus, not entertained.

5 Re Question No.(2):

(a) The Assessing Officer after having rejected the books of account under Section 143(3) of the Act, proceeded
to estimate the income of the Appellant-Assessee. The Assessing Officer on the basis of the material on record
 and statements made during the search and survey proceedings, found that a sizeable portion of the milk shown
as sale was actually used in making of the paneer and other milk products. The same was reflected as direct
milk sales, as the gross profit was much less on sale of milks as compared to profit margin on sale of milk
products. Accordingly, the Assessing Officer on the above basis estimated that gross profit @ 27% for
Assessment Year 2006-07 and 22% for Assessment Year 2007-08 have been suppressed. This resulted in
addition of undisclosed income at Rs.14,13,628/for the Assessment Year 2006-07 and Rs.16,14,580/for
Assessment Year 2007-08.

(b) Being aggrieved, the Appellant Assessee preferred appeals to CIT(A). By order dated 17th September, 2010,
the CIT(A) dismissed the appeals of the Appellant-Assesee. However, so far as Assessment Year 2006-07 is
concerned it corrected the clerical error resulting in undisclosed income being reduced from Rs.14,13,628/to
Rs.12.15 lakhs for Assessment Year 2006-07.

(c) Being aggrieved, the appellant-assessee carried the issue in appeal for both the Assessment Year 2006-07
and 2007-08 to the Tribunal. The impugned order of the Tribunal dismissed the assessee's appeal for both the
years, inter alia holding that the appellant-assessee had failed to submit details coupled with statement of
employees given on oath of (retraction was not found sustainable). This resulted in the estimate of undisclosed
income at Rs.12.15 lakhs of Assessment Year 2006-07 and at Rs.16.11 lakhs for Assessment Year 2007-08. This
estimate on facts of impugned order calls for no disturbance.

(d) The grievance of the appellant-assesee is that the best judgment assessment done by the authorities, is
arbitrary and in the face of the Apex Court's decision in Brij Bhushan Lal Praduman Kumar etc. v/s.
Commissioner of Income Tax, Haryana, Himachal Pradesh and New Delhi [115 ITR 524]. In the above case,
the Court held that a best judgment assessment does not give a license to the Assessing Officer to make a wild
assessment but it must be a best judgment on the basis of available material and circumstances of the case. In
this case, the estimate has been arrived at on the basis of the material on record and also various statements
made by the employees and directors during search and survey proceedings. In fact, the Apex Court in the above
case itself clearly lays down that when best judgment Assessment is done, to some extent there would be element
of guess work and so far as estimate is relatable to some evidence or material, it cannot be said that the
estimate, is perverse and/or wild. Thus, there is no merit in the above submission on behalf of the
Appellant-Assessee.

(e) The next grievance of the appellant-assessee is that the statement made by the employees/ director during the
course of search and survey cannot be the basis for arriving at undisclosed income of the Assessee. In support,
thereof reliance upon CBDT circular dated 10 th March, 2003 as reproduced by Madras High Court in
Commissioner of Income Tax v/s. S. Khader Khan Son [2008] 300 ITR 157 (Mad). The above CBDT Circular
dated 10th March, 2003 would not be applicable to the present facts. The Circular was issued when it was
brought to the notice of the CBDT that the assessees were forced to confess to undisclosed income during the
course of a search . This forced confession formed the basis attributing undisclosed income to the assessee in
absence of any credible evidence in support of the confesion. In the present facts, the statement which are made
by the employees were indubitably voluntarily made and not forced. The subsequent retraction was not found
acceptable by the Authorities. These are questions of appreciation of facts and unless the nonacceptance of
retraction is shown to be perverse no interference in the present facts is called for.

(f) Further grievance of the Revenue was on the basis of decision of this Court in Commissioner of Income Tax
v/s. Continental Warehousing Corporation (Nhava Sheva) Ltd., [2015] 374 ITR 645 (Bom.) which holds that in
the absence of any material found in search there would be no warrant for making an assessment under Section
153(A) of the Act. This reliance upon the decision of this Court in Continental Warehousing Corporation
(Nhava Sheva) Ltd., (supra) is inappropriate. This for the reason that the issue of no incriminating document
being found in the search is not question which has been urged/ raised before us by the appellant-assessee. The
only two questions referred to herein above were the question which were urged before us by the
appellant-assesssee, as giving rise to substantial questions of law. Thus, we are not examining the aforesaid
decision of Continental Warehousing Corporation (Nhave Sheva) Ltd., (supra) in the present facts.

(g) In the above view, we find that the view taken by the authorities under the Act is a possible view. Therefore,
Question No.2 as formulated, does not give rise to any substantial question of law. Thus, not entertained.

6 Accordingly, both Appeals dismissed. No order as to costs.

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Customized Notes

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